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The long-delayed Constitution (122ndAmendment)
Bill, 2014 on GST (“122nd CAB” or “GST Bill”) has finally got the
nod of the RajyaSabha yesterday, with the Government successfully stitching
together a political consensus on the GST Bill, to pave the way for
much-awaited roll out of the landmark tax reform that will create a common
market of 1.25 billion people.GST, is the biggest indirect tax reform since independence,
is aimed at dismantling Inter-State barriers to trade in goods and services by
subsuming a slew of around 17 indirect taxes viz. Excise Duty, Service Tax,
VAT, CST, Luxury tax, Entertainment Tax, Entry Tax, Octroi, etc.

The Rajya Sabha has unanimously
passed the ambitious GST Bill as amended with over 2/3 majority. The
motion for the constitutional amendment for the GST Bill has been passed with
197 Ayes. It was crucial for the critical amendment to come in as early as
possible with only ten days left for themonsoon session to end.The key to
forging consensus was the amendments the National Democratic Alliance (NDA)
effected in the GST Bill, a copy of which was circulated among Rajya Sabha
members on August 2, 2016.

The GST Bill after getting introduced
in Lok Sabha on December 19, 2014, was approved by the Lok Sabha in May last
year (May 6, 2015) and referred to a Select Committee of Rajya Sabha which had
submitted its Report on 122nd CAB on July 22, 2015. The GST Bill was
introduced in Rajya Sabha in May last year where it has been pending because of
consensus to be emerged between ruling and oppositionparty over certain
provisions viz. Dropping of 1% additional tax on Inter-State sale of goods,
Capping of GST rate in 122nd CAB, Forming of dispute resolution
authority.

Ahead of the much-delayed 122nd
CAB being taken up by Rajya Sabha yesterday, the Government, on August 2, 2016,
has circulated to MPs, the amendments it has proposed in the GST Bill to enable
implementation of GST. These proposed amendments importantly includesdropping
of 1% additional tax on Inter-State Sale of goods and a definite provision in
the statute for 100% compensating the States for any revenue loss for 5 years,
amongst others.

With these official amendments, the
Government partially met the demands of the Congress party which has been
blocking the bill in the Rajya Sabha and this enabled the 122ndCAB
to finally see the light of the day.

We are summarising herewith key amendments
to the GST Bill, which was circulated to Rajya Sabha members on August 2, 2016,
for easy digest:

Dropping 1% Additional taxon Inter-State supply of goods:

It is proposed to delete the
provision under Clause 18 of the GST Bill.

Clause 18 of the GST Bill:The 122nd CAB proposes
for levy of an Additional tax, not exceeding 1%, on Inter-State supply of goods
in the course of Inter-State trade or commerce. It is proposed that such
Additional tax would be levied and collected by the Union for a period of 2
years or such other period as the GST council may recommend, and be assigned to
the State from where the supply originates.

Recommendation of the Select
Committee, 2015:The
Committee felt that the provision of 1% Additional tax in its present form is
likely to lead to cascading of taxes. Therefore, the Committee strongly
recommended that following explanation should be added defining the word
‘supply’ under Clause 18:

“Supply: "All forms of supply made for a consideration".

The suggested change was meant for dropping of 1% additional
tax on inter-state the movement of goods within the same company but, the
proposed amendment now has done away with 1% Additional tax on Inter-State
supply of goods whether it is within the Company or outside the Company.

Full Compensation to States upto 5 years:

Clause 19 of the GST Bill:The Parliament may,
by law, provide for compensation to States for any loss of revenues arising on
account of GST, for a period which may extend to five years, based on the
recommendations of the GST Council. This implies that Parliament may decide to
provide compensation to States and may also decide the time period for which it
can provide such compensation, which may extend to five years.

Proposed amendment:The Parliament shall,
by law, provide for compensation to States for any loss of revenues arising on
account of GST, for a period which may extend to five years, based on the
recommendations of the GST Council. This
implies that the Parliament must provide compensation and compensation shall be
provided for a maximum time period of five years.

Recommendation of the Select
Committee, 2015:The
Committee felt that there is no justification for substitution of the word
‘may’ with ‘shall’. It, however, recommended that compensation should be provided
for whole period of 5 years and accordingly proposed amended Clause 19 as
follows:

“19. Parliament may, by law, on the recommendation of the Goods and
Services Tax Council, provide for compensation to the States for the loss of
revenue arising on account of implementation of the Goods and Services Tax for
a period of five years.”

Dispute resolution Authority:

Clause 12 of the GST Bill: The GST Council may decide upon
the modalities to resolve disputes arising out of its recommendations.

2016 proposed amendment: The GST Council shall establish a
mechanism to adjudicate any dispute between:

(a) theGovernment of India and one
or more States; or

(b) theGovernment of Indiaand any
State or States on one side and one or more States on the other side; or

(c) Two or more States

arising out of its recommendations.

Recommendation of the Select Committee,
2015:The
Committee, having noted the point mentioned by the Department ofRevenue that
the GST Council shall decide only the ‘modalities’ to resolve disputes, did not
agree to recommend inclusion of Article 279B i.e. provision for GST Dispute
Settlement Authority, as was proposed in Constitution(115thAmendment)
Bill, 2011.

Other changes:

Integrated Goods and Services Tax (“IGST”)

Clause 9: Apportionment of IGST
i.e. Article 269A: It has been clarified that the States’
share of the IGST shall not form a part of the Consolidated fund of India.

Clause 12: IGST term to be replaced
with GST on suppliesin the course of inter-state trade or commerce: Under Clause 12 of the GST Bill, it
was mentioned that the GST Council would make recommendations on the
apportionment of the IGST. Since, the term IGST was not defined,it has been
proposed to replace this term with “Goods
and Services Tax levied on supplies in the course of inter-state trade or
commerce under article 269A”.

Inclusion of CGST and IGST in tax devolution to States

It has been proposed that under
Clause 10 of the GST Bill, CGST and the Centre’s share of IGST will be
distributed between the Centre and States.

Clause 10 of the GST Bill: The GST collected and levied by
the Centre, other than States’ share of IGST, (CGST and Centre’s share of IGST)
shall also be distributed between the Centre and States.

Recommendation of the Select
Committee, 2015:Adopted
with no change

Way forward to GST by April 2017:

Unanimous passage of the GST Bill
is indeed a good day for the economy, but, at the same time, it marks just the
beginning of a still-to-go-journey.

Since there are key amendments in
the original draft of the GST Bill that was passed in theLokSabha last year,
the GST Bill has to, once again, go back to the Lok Sabha.

Thereafter, the GSTBill will also have
to be ratified by at least 50% of the States before being presented to the
Hon’ble President of India for his assent.Subsequently, a GST Council will be
set up within 60 days of the enactment of the GST Bill, comprising the Union Finance
Minister, MOS – Revenue/Finance and State Finance Ministers, which will make important
recommendations on GST rates, Exempted goods and services, dual control&
adjudication, etc.

Thereafter, two
legislations—Central GST (CGST) and Integrated GST (IGST) will have to be passed
by Parliament and a State GST (SGST) legislation by each of the State Legislatures.

Passage of the 122nd CAB
in the Parliament is being seen as a big victory for the Narendra Modi
government. The next big challenge for the Narendra Modi government is to get
the States on board and get rest of the process going as quickly as possible to
meet the deadline of implementation of GST by April 2017.

Video presentations on Model GST Law:

Watch the following videos to enrich knowledge regarding the key takeaways of the Model GST Law and the areas to be worked upon under the Model GST Laws – CGST, SGST and IGST: